Chugging in critical reform

Subir Roy
Senior economic analyst

The Indian Railways has been one of the most change-resistant organisations in the country. Expert committees have over decades recommended key changes in the way the national carrier is organised and run, but to no avail.

This is likely to change now, hopefully. Railways Minister Piyush Goyal has announced two key changes which strike at the root of the problem. One, the eight cadres of railway officials will be merged into one, Indian Railway Management Service. Two, the railway board, the apex body which runs the organisation, will be reorganised and the number of its members reduced. Along with this, the chairman of the railway board will be designated the CEO.

The reforms seek to address one paramount problem, departmentalism. Individual departments, run by their designated cadre officials, have zealously guarded their turf and operated in silos, often to the detriment of the overall health of the organisation. The decision taken over a decade ago to regularise overloading of wagons and thus earning more revenue was unconscionably delayed because the revenue people were pushing it but technical people saw nothing in it for themselves.

Traditionally, the railway board chairman has presided over meetings as the first among equals, and when departments have fought among themselves, a decision has simply been postponed. Now the chairman as CEO will have the authority to tell the factions to do as told. These changes will hopefully put an end to departmentalism.

Internationally, there is one classical instance of departmentalism hurting the wider cause. The Japanese bureaucracy, presided over by the cabinet secretary, has not had the authority to tell those engaged in a skirmish where to get off. The result of this is that when after the Second World War, individual bureaucrats were asked how they could have allowed the country to start such a ruinous war, they replied that it was not their war but that of the defence ministry.

The railway board, which had till now seven plus one (chairman) members, will have four other than the chairman as CEO. They will be in charge of infrastructure, rolling stock, finance and operations, and business development. It is here that the trouble with the changes begins. Restructuring of the board remains a half-done job.

Earlier, whenever organisational restructuring was suggested, the whole idea was that from being an organisation primarily geared to looking after the various services, it would become one which would be structured to serve different customer segments like freight and passengers. In keeping with this, there would be on the board, for example, a member freight and a member passenger. Though there has been a movement towards orientations in terms of functions, the change has stopped halfway.

But by far the bigger issue now before the Railways is the merging of the cadres. Railway officials are vehemently opposed to it. This will make a task intrinsically difficult, even more so. How difficult it is to merge cadres can be seen from the problems which cropped up when Indian Airlines was merged with Air India and their different cadres had to be merged.

The only way this herculean task can be successfully completed is with direct supervision and push from a powerful railways minister who is left to run the whole course. Goyal does command a lot of clout.

What happens most often in Indian politics is that every new minister sets his own agenda, with the earlier one not losing importance, and sometimes being scuttled by default. And if a new government comes in after a few years, and before the job is complete, the earlier agenda can become a matter of history.

Reorganisation of cadres and functions is really a medium, if not long-term task. The immediate short-term issue is freight earnings lagging behind the target as a result of the general economic slowdown. In the first seven months (April to November) of the financial year 2019-20, freight revenue clocked only half the whole year’s target.

Hence, the board and the chairman are contemplating cutting the already high freight rates, so as to offer an incentive to haulers to shift from road to rail. Again, this is a good long-term strategy for the Railways to regain market share. But during a slowdown, when there may be short-term supply inelasticities, cutting freight rates may well lead to further fall in revenue earnings.

The other stratagem now acted upon is raising passenger fares. Traditionally, fares have been cross subsidised by freight revenue, and so there is a long-term case for raising passenger fares. But passenger revenue is currently not doing well either. Raising passenger fares at this juncture can lead to further fall in passenger revenue. A journey, like a consumer durable purchase, can easily be postponed.

On current reckoning, there seems to be little that the Railways can do to combat the downturn in its finances. Traditionally, the Railways, because of its size and infrastructure status, has gone up and down in tandem with the overall economy. The same is happening now. Railway finance will recover when the economy revives. The more fundamental changes outlined above, if they are actually carried out — and that is a big if — can have an impact only in the medium term.